Shoppers and businesses in the UK have endured several brutal years, but now, in 2024, we have at last come to a point of economic and political transition.
On the economic side, things are tentatively looking up. Inflation pressure is easing and the financial position of the average UK household is improving, slowly. The economy is transitioning back into growth, although growth is likely to be fitful, at best – as is the case in other advanced economies.
We have incorporated this slightly more upbeat economic view into IGD food inflation forecasts. We expect the downturn in food price inflation is now coming to an end, and inflation will level off in late 2024, reaching the ‘normal’ level of 1%-3% by year-end and holding steady into 2025.
There are, naturally, many uncertainties when trying to predict the path of inflation. Global conflict, weather effects and wage costs all create inflation risk in our market. We also incorporate the improving position into our forecasts for the long-term growth of the UK food system, which now anticipate a slow recovery in volume performance.
This does not mean that all is rosy, of course.
IGD’s Shopper Vista research shows there are still wide differences in experiences and expectations, with wealthier households remaining optimistic, whilst lower income households are struggling – and expect to continue struggling.
Even as inflation fades, other factors will threaten the financial welfare of households: debt, housing costs, taxes and so on. Many households will remain ‘defensive’ when food shopping for some time.
Food system recovery will likely be an uphill struggle, with businesses looking for ways to grow sales and profits in the face of (possibly) fragile shopper confidence. A key factor will be shopper trust in the food system. This has been remarkably robust over the last few years, but it is not inexhaustible. Bolstering trust over price and value will need particular attention.
Turning to political transition, we now have a Labour government, suggesting a change in direction for the first time in 14 years. The Labour manifesto and subsequent King’s Speech have introduced an ambitious programme for social and economic change. Delivering this depends heavily on the ability to enable economic growth, and a thriving UK food system can support this.
Driving economic growth is therefore the central pillar of Labour’s objectives. However, the UK faces a range of challenges – lack of labour and skills, poor infrastructure, population ageing and so on. None of the issues are unique to the UK – they can be seen in most other west European economies – but it may be unique to have all the issues in the same country, at the same time.
Getting out of our economic hole will take time, as illustrated just last week by the IMF, which predicted economic growth will need to substantially improve to support public services without any additional tax rises.
Our food system can be the engine behind the government’s growth ambitions. Engaging with sectors that form the ‘everyday economy’ will be essential to achieving this. Not only is the food system the UK’s largest private sector employer, but it is also made up of thousands of businesses across the breadth of the country, accounting for 7% of economic activity.
History has shown misfortune can wreak as much havoc as mismanagement. The need for a more resilient economy is clear and the food system must be similarly shock-proof.
The Labour manifesto recognises explicitly that food security is a component of national security, indicating that the party is thinking about food, and the commitment to better working practices is encouraging. However, the new government has a long to-do list, with many sectors competing for attention. Food system leaders need to take the initiative and engage actively to ensure government policy focus remains on us.
The UK is at a point of transition. What happens next is not certain, but there is no doubt a thriving food system is central to success.
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